Paying only the minimum due on a Rs 1 lakh credit card bill can lead to high finance charges and loss of interest-free periods. According to reports from NDTV Profit, the minimum amount due can be around 5% of the total outstanding amount, meaning a Rs 1 lakh bill may require a minimum payment of Rs 5,000. The remaining balance of Rs 95,000 is carried forward and continues to attract finance charges, which can be considerably higher than interest rates on other forms of borrowing.
Credit card finance charges can be substantial, with SBI Card listing rates up to 3.75% per month or 45% per annum on several unsecured credit cards. As reported by NDTV Profit, for a Rs 1 lakh outstanding balance with a 3.75% monthly finance charge, the first month's finance charge would be approximately Rs 3,750, plus GST of Rs 675, totaling around Rs 4,425. If the cardholder pays only Rs 5,000, only about Rs 575 would effectively reduce the outstanding balance, with the remaining Rs 95,000 continuing to attract finance charges.
Paying only the minimum amount can result in the loss of interest-free credit period benefits. According to NDTV Profit, when the total amount due is not paid by the due date, interest may be charged on the outstanding balance, subject to the card issuer's terms and after adjusting for payments, refunds and reversed transactions. This means that even if the minimum payment is made on time, the remaining balance may still attract finance charges, potentially extending the repayment timeline significantly.
For large outstanding balances, financial experts recommend avoiding fresh expenses on the card and paying substantially more than the minimum amount. As reported by NDTV Profit, the larger the payment towards the outstanding balance, the lower the amount on which future finance charges can accumulate. Most importantly, paying only the minimum due should be viewed as a short-term option rather than a long-term repayment strategy, as a large outstanding balance can take years to clear when credit card finance charges continue to accumulate.
